The Climate Crisis Will Harm the Economy and Consumers, More Studies Confirm

A growing body of research finds that climate change results in enormous economic costs.

Credit: John Englart via Flickr, CC BY-SA 2.0

For Americans and citizens around the world generally, personal finances and economic security are issues of upmost importance, the real “kitchen table issues” that often influence how folks vote in national elections.

In the US, the Republican and Democratic parties offer vastly different visions for economic prosperity, and a key contrast here actually centers around energy and climate change. The Democratic Party 2024 platform discusses boosting the clean energy economy that is creating hundreds of thousands of jobs while lowering energy costs and reducing climate pollution. The platform refers to the climate crisis as “an existential threat to future generations.” The Republican Party 2024 platform does not mention climate change at all, but it does promise to end inflation, lower costs and champion economic superiority largely by cutting regulations and doubling down on fossil fuel production. “Drill baby drill” is an essential element of the Republican economic vision. But this completely ignores the enormous economic costs resulting from climate change, which is primarily caused by burning fossil fuels.

Several studies and analyses released this past spring add to the growing body of research finding that climate change negatively impacts the economy and contributes to rising prices. Failing to mitigate global heating, which scientists and experts say requires phasing out fossil fuels, would be economically devastating, both from a macroeconomic perspective and to the personal finances of most individuals.

“If you care about inflation, you’d better care about climate disruption.” - US Senator Sheldon Whitehouse

In terms of inflation, researchers are starting to examine and quantify how climate-related shocks and impacts like rising temperatures may affect inflation. Under temperature increases projected for 2035, annual food inflation could rise by 3.2 percentage points per year and overall inflation could go up 1.18 percentage points per year, finds a study published in March in the journal Communications Earth & Environment. “Higher temperatures increase food and headline inflation persistently over 12 months in both higher- and lower-income countries,” the study states. Climate change is projected to impact global supply chains as extreme weather disrupts sectors from agriculture to transportation. “If you care about inflation, you’d better care about climate disruption,” US Senator Shelton Whitehouse (D-RI), chair of the Senate Budget Committee, said during a committee hearing last fall on the topic of how climate change threatens supply chains.

Another warning of how climate change hurts the economy comes from a paper published in May by the National Bureau of Economic Research, which finds that global economic damages from climate change are six times larger than previously understood. Rather than estimating damages using country-level temperatures, researchers examined global temperature impacts on GDP, an approach they say is able to predict extreme climate events much more strongly. They find that, overall, a 1°C rise in global temperature reduces global GDP by 12%. “The impact of climate change on economic activity is substantial,” the paper concludes, warning that “climate change represents a major threat to the world economy.”

Yet another analysis issued earlier this year says something pretty similar. A study from researchers at the Potsdam Institute for Climate Impact Research in Germany, published in the peer-reviewed journal Nature in April, finds that the world economy will suffer an income reduction of 19 percent over the next 26 years due to climate change damages that are already committed or unavoidable. These committed damages are estimated given past greenhouse gas emissions and the range of likely future emissions scenarios. As the study explains, the committed economic damages “comprise a permanent income reduction of 19% on average globally”, which corresponds to $38 trillion in annual economic damages in 2049. “These damages already outweigh the mitigation costs required to limit global warming to 2°C by sixfold over this near-term time frame,” the study says.

“Our analysis shows that climate change will cause massive economic damages within the next 25 years in almost all countries around the world, also in highly-developed ones such as Germany, France and the United States,” Potsdam Institute scientist Leonie Wenz, who led the study, said in a news release. “We have to cut down our emissions drastically and immediately – if not, economic losses will become even bigger in the second half of the century, amounting to up to 60% on global average by 2100.”

In the US, the Fifth National Climate Assessment, released just last year in November, explains how climate change is expected to impose new costs and adversely affect the economy and Americans’ pocketbooks. “Weather-related disasters currently generate at least $150 billion per year (in 2022 dollars) in direct damages to the US, a cost that is projected to increase due to climate change in the near term. Over the next few decades, climate change is projected to cause ecosystem disruptions, water stress, and agricultural losses,” the report states. Furthermore, it warns: “On average, climate change is projected to reduce future income gains” while raising consumer costs. “Climate change will affect household spending…increasing medical costs, elevating food prices, raising insurance premiums, and requiring more frequent repairs and replacement of assets damaged by extreme events,” the report explains.

These findings are consistent with those of another analysis zeroing in on how climate change will impact the personal finances of the next generation of Americans. According to a study conducted by consulting firm ICF, commissioned by Consumer Reports, climate change will have substantial financial impacts on individual consumers. In the United States, babies born in 2024 could see lifetime costs of $500,000 stemming from projected impacts of climate change on income and the cost of living. Lifetime costs for Americans born today could even reach up to $1 million when more uncertain factors are considered, the study found.

These estimated costs are based on a high emissions scenario that assumes little additional climate mitigation. The analysis also considered a low emissions scenario, finding that under such a pathway the personal financial impacts would be far less severe. The implication, then, is that climate action will save consumers money over the long run – in the lifetimes of your kids or grandkids. If you want a secure financial future for them, supporting policies to rein in planet warming emissions is one of the most important things you can do, the study suggests.

“As a new mother, I think a lot about what the future will look like for our son. The study really brings home what’s at stake, and why it’s important for us all to work together to address climate change,” said Alexandra Grose, a senior policy counsel for Consumer Reports. “The effects can greatly impact the choices we have and the prices we pay to support our families, from home insurance to the food we feed our kids.”

Climate change and its disruptive physical impacts, like more extreme weather, is expected to drive up prices of everything from food to healthcare to housing. Limiting the magnitude of these cost-of-living increases is still possible, but it will require dedicated climate action. As the study explains: “Decisions made today by individuals, businesses, and governments will affect the lifetime financial situation of every American child born in 2024.”